Rae Company purchased a new vehicle by paying $11,800 cash on the purchase date

Q: Rae Company purchased a new vehicle by paying $11,800 cash on the purchase date

a. $98,419 The vehicle ($98,419) is equal to the present value of the twenty remaining payments [$4,800 × 18.0456 (present value of a 1%, 20-period ordinary annuity)] plus the initial $11,800 payment.

ID: 2536426 • Letter: R

Question

Rae Company purchased a new vehicle by paying $11,800 cash on the purchase date and agreed to pay $4,800 every three months during the next five years. The first payment is due three months after the purchase date. Rae's incremental borrowing rate is 4%. The liability reported on the balance sheet as of the purchase date, after the initial $11,800 payment was made, is closest to: (FV of $1, PV of $1, FVA of $1, and PVA of $1) (Use appropriate factor(s) from the tables provided.)

a $98,419.

b $107,800.

c $96,000.

d $86,619.

Explanation / Answer

a. $98,419

The vehicle ($98,419) is equal to the present value of the twenty remaining payments [$4,800 × 18.0456 (present value of a 1%, 20-period ordinary annuity)] plus the initial $11,800 payment.

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Rae Company purchased a new vehicle by paying $11,800 cash on the purchase date

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